Alibaba shares slide as Jefferies trims price target amid rising costs

TLDR

• Alibaba dropped 2.9% in Hong Kong trading to HK$122.70
• Jefferies lowered its price target for BABA from $212 to $185, while retaining a Buy rating
• Anticipated higher spending on Qwen promotions is projected to impact earnings
• Forecasts indicate widening losses in Alibaba’s non-core “All Others” segment for Q1 2027
• Jefferies anticipates that quick commerce losses will narrow in the March quarter

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(SeaPRwire) –   Alibaba shares declined in Hong Kong trading on Thursday following a price target reduction by Jefferies, driven by escalating AI expenses and expanding losses in non-core operations.

Alibaba Group Holding Limited, BABA

The equity slipped 2.9% to HK$122.70, acting as a significant drag on the Hang Seng index, which fell 0.6% for the session.

Jefferies reduced its U.S. price target for BABA from $212 to $185, while maintaining its Buy rating.

This reduced target highlights two primary concerns: increased spending to promote Qwen AI products and projected growth in losses within non-core business units.

Alibaba introduced the AI text-to-video application Happy Horse earlier this year. Although Jefferies viewed the launch positively, it noted that heavy promotional spending during the Lunar New Year period could negatively affect near-term profitability.

The company disclosed plans to allocate 3 billion yuan (approximately $431 million) to Lunar New Year promotions, with a significant portion directed toward attracting users to Qwen.

Such expenditure consumes capital rapidly, and these figures are beginning to appear in recent forecasts.

Pressure on Non-Core Units

Alibaba’s “All Others” segment, encompassing non-core and retail operations, is projected to report wider losses in the March quarter, driven by higher subsidies and promotional activities.

Despite this, Jefferies forecasts that fiscal 2027 losses in this segment will still be cut in half compared to the previous year. While this suggests a positive long-term outlook, the near-term trajectory remains volatile.

AliCloud Still a Bright Spot

However, not all areas are facing headwinds. Jefferies anticipates that AliCloud will sustain its robust growth momentum and potentially accelerate in the March quarter.

Cloud computing remains a standout growth narrative for Alibaba, serving as a key justification for retaining the Buy rating despite the target reduction.

Additionally, Jefferies expects quick commerce losses to narrow in the March quarter, bolstering the bullish outlook even amidst challenges in other segments.

Jefferies upheld its Buy rating on BABA despite the target cut, indicating the firm believes there is still upside potential from current price levels.